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Cablegate: Burma's Shrinking Apparel Industry

VZCZCXRO2552
RR RUEHCHI RUEHDT RUEHHM RUEHNH RUEHTRO
DE RUEHGO #0878/01 2570918
ZNR UUUUU ZZH
R 140918Z SEP 07
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 6516
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBY/AMEMBASSY CANBERRA 0511
RUEHKA/AMEMBASSY DHAKA 4611
RUEHNE/AMEMBASSY NEW DELHI 4044
RUEHUL/AMEMBASSY SEOUL 7601
RUEHKO/AMEMBASSY TOKYO 5158
RUEHCN/AMCONSUL CHENGDU 1197
RUEHCHI/AMCONSUL CHIANG MAI 1082
RUEHCI/AMCONSUL KOLKATA 0060
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3293
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 0948
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 03 RANGOON 000878

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, EEB/TPP/ABT - GCLEMENTS
COMMERCE FOR ITA/OTEXA - MDANDREA
USTR FOR CMILLER
PACOM FOR FPA
TREASURY FOR OASIA:SCHUN

E.O. 12958:N/A
TAGS: ECON ETRD KTEX BM
SUBJECT: BURMA'S SHRINKING APPAREL INDUSTRY

Ref: Rangoon 871

RANGOON 00000878 001.2 OF 003


1. (SBU) Summary. Burma's textile and apparel industry, once a
vibrant and thriving industry, continues to lose competitiveness on
the world market. Burmese apparel exports have dropped 56 percent,
from 661.8 million in 2003 to 288.8 million in 2006. Private
industry officials are confident that textile and apparel exports in
2007 will match 2006 levels, but are unsure about the future of
Burma's dwindling textile industry. Although companies face
declining profits, they are afraid to produce high-value products
for niche markets and instead focus on basic Cut-Make-Pack
operations. There has been no new "official" foreign direct
investment in the textile sector since 2003, although foreign
companies from Korea and Taiwan provide indirect support to
Burmese-owned factories. Illegal imports of Chinese garments
continue to enter the market, and because they only compete with
privately-made apparel and not government products, the GOB does not
consider them a threat. End Summary.

Garment Industry Shrinking
--------------------------

2. (SBU) Burma's garment industry has taken a big hit in the past
five years. In 2003, more than 400 private garment factories
existed in Burma, exporting a total of $661.8 million in apparel
products to countries including the United States, Europe, and
Japan. Between 2004 and 2006, investors closed more than 230
private factories and laid off more than 200,000 workers. U Myint
Soe, Chairman of the Garment Association, confirmed that there has
been no new "official" foreign investment in the garment industry
since 2003. While industry analysts point to the imposition of U.S.
sanctions in 2004 as the driving force behind the decline of the
garment industry, Burma's poor investment climate and deteriorating
infrastructure also triggered the factory closings.

3. (SBU) Private firms dominate Burma's garment industry,
controlling approximately 170 private garment factories in Burma.
The majority of these firms export finished apparel products only ,
while less than thirty factories produce for the Burmese market.
The government, under the Ministry of Industry (I) operates two
garment production centers, manufacturing only for domestic sale.
Burma's investment laws do not favor foreign companies, which must
pay their bills and taxes in foreign currency at the official
exchange rate of 6 kyat/$1. Locally owned companies pay in kyat at
the market rate of 1350. Of the 170 private factories, less than
twenty are 100 percent foreign-owned and approximately eighty
receive funds from Taiwanese and Korean companies but are registered
under a Burmese owner. U Myint Soe acknowledged that the government
condones this practice because it is the only way to keep the
garment industry from collapsing.

They're Just Sewing Machines
----------------------------

4. (SBU) Unlike other Asian countries with developed garment
sectors, Burma's garment industry is not particularly innovative.
Garment factories are Cut-Make-Pack (CMP) businesses; factories earn
profits not on goods sold, but rather on the commission made on
low-wage sewing. (Note: Burma's labor costs are the lowest in the
region; garment factory workers make an average of 30,000 kyat or
$23 a month. End Note.) Garment factories in Burma do not sell
directly to the end users, but instead establish relationships with
companies from Hong Kong, Taiwan, Japan, and Korea, which order a
certain number of finished apparel pieces to resell to the European
and Asian markets. To fulfill orders, Burmese garment factories
import 100 percent of inputs, including fabrics, threads, and
adornments, and create the garment from a specific pattern. The


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